CHAPTER 2
The Supply Chain Management
Concept
Learning Objectives
• To learn about supply chains and their
management
• To understand differences between transactional
and relational exchanges
• To realize the importance of leveraging technology
• To appreciate barriers to supply chain management
© 2008 Prentice Hall
2-2
The Supply Chain Concept
• Key Terms
• Key Terms
–
–
–
–
–
–
Agile supply chain
Bullwhip effect
Contract logistics
Data mining
Fast supply chain
Fourth-party logistics
(4PL)
– GSCF model
–
–
–
–
–
–
–
© 2008 Prentice Hall
Partnerships
Perfect order
SCOR model
Supply chain
Supply chain collaboration
Supply chain management
Third-party logistics
(logistics oursourcing)
2-3
About Supply Chains…
• A supply chain “encompasses all activities
associated with the flow and
transformation of goods from the raw
material stage (extraction), through to the
end user, as well as the associated
information flows.”
Source: Robert B. Handfield and Ernest L. Nichols, Jr., Introduction to
Supply Chain Management
2-4
Different Supply Chain Configurations:
Direct Supply Chain
Supplier
Organization
Customer
2-5
Different Supply Chain Configurations:
Extended Supply Chain
Supplier
Supplier’s
suppliers
Organization
Customer
Customer’s
customers
2-6
Different Supply Chain Configurations:
Ultimate Supply Chain
3rd Party Logistic Supplier
Supplier
Organization
Customer
Ultimate
customer
Ultimate
supplier
Financial Provider
Market Research
2-7
Supply Chain Management
Supply chain management encompasses the
planning and management of all activities involved
in sourcing and procurement, conversion, and all
Logistics Management activities. Importantly, it
also includes coordination and collaboration with
channel partners, which can be suppliers,
intermediaries, third-party service providers, and
customers. In essence, Supply Chain
Management integrates supply and demand
management within and across companies.
CSCMP
Logistics: What It Is?
• CSCMP (Council of Supply Chain
Management Professionals) definition:
“Logistics is that part of the Supply Chain
Management that plans, implements, and
controls the efficient, effective forward and
reverse flow and storage of goods, services,
and related information between the point of
origin and the point of consumption in order
to meet customers’ requirements.”
Source: clm1.org
© 2008 Prentice Hall
1-9
Successful Supply Chains
have…
• Enterprise-to-enterprise point of view
• Systems approach across all organizations
in the supply chain
– Companies recognize interdependencies
– Goals and objectives are compatible
© 2008 Prentice Hall
2-10
The Supply-Chain Operations
Reference (SCOR) Model
• Process reference models integrate the well-known
concepts of business process reengineering,
benchmarking, and process measurement into a crossfunctional framework.
• A Process Reference Model Contains:
–
–
–
–
–
Standard descriptions of management processes
A framework of relationships among the standard processes
Standard metrics to measure process performance
Management practices that produce best-in-class performance
Standard alignment to features and functionality
http://supply-chain.org/f/SCOR%2090%20Overview%20Booklet.pdf
http://archive.supply-chain.org/galleries/defaultfile/SCOR%2080%20Overview%20Booklet2.pdf
The Supply-Chain Operations
Reference (SCOR) Model
© 2008 Prentice Hall
http://archive.supply-chain.org/galleries/defaultfile/SCOR%2080%20Overview%20Booklet2.pdf
2-12
The Global Supply Chain Forum
(GSCF) Model
•
•
•
•
•
•
•
•
Customer Relationship Management (CRM)
Customer Service Management
Demand Management
Order Fulfillment
Manufacturing Flow Management
Supplier Relationship Management
Product Development and Commercialization
Return Management
http://findarticles.com/p/articles/mi_qa3705/is_200501/ai_n13632938/?tag=content;col1
Globalization of Supply Chains
• Increasing globalization
– Lower priced materials and labor
– Global perspective of companies
– Development of global competition
• Extremely difficult to execute due to differences
– Cultural, economic, and technological
– Political, spatial, and logistical
© 2008 Prentice Hall
2-14
Key Attributes of
Supply Chain Management
• Customer power
– Fast and agile supply chain
• Long-term orientation
– Relational exchanges
– Transactional exchanges
• Leveraging technology
– Computer and Internet
• Enhanced communication across organizations
© 2008 Prentice Hall
2-15
Key Attributes of
Supply Chain Management
• Inventory control
– Bullwhip effect
– JAZ
• Interorganizational Collaboration
– Supply chain councils
© 2008 Prentice Hall
2-16
Barriers to
Supply Chain Management
•
•
•
•
•
Regulatory and political considerations
Lack of top management commitment
Reluctance to share, or use, relevant data
Incompatible information systems
Incompatible corporate cultures
© 2008 Prentice Hall
2-17
Supply Chain Management and
Integration
• Long-term, mutually beneficial agreements
– Partnerships
– Strategic alliances
– Third-party arrangements
– Contract logistics
• Methods used to integrate
– Vertical integration
– Formal contracts
– Informal agreements
© 2008 Prentice Hall
2-18
Supply Chain Management and
Integration
• Third-Party Logistics (3PL)
– Logistics outsourcing
– Contract logistics
• Fourth-party logistics (4PL) primarily used
in global companies
– Lead logistics provider (LLP)
• Supply chain software
© 2008 Prentice Hall
2-19
Case 2-1 Johnson Toy Company
Company Facts:
• Located Biloxi, Mississippi
Product Facts:
• Basic Design Toys: Low profit margin
• Unconventional Toys: Risky, High profits if popular
– Jungle Jim the Jogger
Market Facts:
• Seasonal
1-20
Case 2-1 Johnson Toy Company
Problems at Hand:
• Popular toy turns into unpopular
• Production was cancelled
• Returns without a clear policy
Discussions:
• #1: From the standpoint of an individual concerned with
accounting controls, discuss and evaluate Johnson Toy
Company’s present policies for handling returned items.
• #2: Answer question 1, but from the standpoint of an
individual interested in marketing.
1-21
Case 2-1 Johnson Toy Company
Discussions:
• #3: Propose a policy for handling returns that should be
adopted by the Johnson Toy Company. Be certain to list
circumstances under which exceptions would be allowed.
Should it apply to the Jungle Jim dolls?
1-22
Case 2-1 Johnson Toy Company
I. HIGH VOLUME CUSTOMERS (defined as purchasing
$75,000 of merchandise from Johnson’s per year)
A. Functionally damaged goods may be returned to Johnson’s
plant at Johnson’s expense with a full refund.
B. High volume customers will receive a straight 2% deduction
off of the wholesale selling price to cover defectives—
whether defectives are classified as cosmetically damaged
or slow moving items, except when unable to sell due to
special circumstances (see Section III).
1-23
Case 2-1 Johnson Toy Company
II. LOW VOLUME CUSTOMERS
A. Functionally damaged goods may be returned to Johnson’s
plant via Johnson’s salesperson with a full refund.
B. Low volume customers will NOT receive an automatic
deduction for defectives. Instead, the damage or defect must
be defined:
– Cosmetically damaged goods (classified as functionable
and sellable): a 25% discount granted upon inspection by
Johnson’s salesperson.
– Slow moving items: NO RETURNS
– Non-moving items (for reasons other than physical
damage)
1-24
Case 2-1 Johnson Toy Company
III. SPECIAL CIRCUMSTANCES When product is not
resellable for reasons other than being functionally damaged
or just a slow mover in the off season, such as when the
product receives bad press (as in the case of Jungle Jim and
Jogger Dolls), Johnson will allow return of all such nonresellable items under the following conditions:
Retailer must pay for the returned merchandise to reach Johnson’s
plant.
B. Retailer’s account will be credited for the full amount of said
purchase.
C. Credit is to be used within 30 days of receipt of returned goods at
Johnson’s plant; credit will be void after 30 days.
A.
1-25
Case 2-1 Johnson Toy Company
Discussions:
• #4: Should this policy, if adopted, be printed and
distributed to all of the retailers who handle Johnson Toy
Company products? Why or why not? If it should not be
distributed to them, who should receive copies?
• #5: Assume that it is decided to prepare a statement on
returns to be distributed to all retailers and that it should
be less than a single double-spaced page. Prepare such
a statement.
• #6: On the basis of the policy in your answer to question
3, develop instructions for the Johnson Toy Company
distribution and accounting departments with respect to
their roles and procedures in the handling of returns.
1-26
Case 2-1 Johnson Toy Company
Discussions:
• #7: Assume that you are Cheryl Guridi, the firm’s logistics
manager. Do you think that the returns policy favored by
the logistics manager would differ from what would be
best for the firm? Why or why not?
• #8: Until the policy you recommend in your answer to
question 3 takes effect, how would you handle the
immediate problem of retailers wanting to return unsold
Jungle Jim the Jogger dolls?
1-27
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Company Facts:
• Located Biloxi, Mississippi
Product Facts:
• Basic Design Toys: Low profit margin
• Unconventional Toys: Risky, High profits if popular
– Jungle Jim the Jogger
Market Facts:
• Seasonal
1-28
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Company Facts:
• Located Billings, Montana
• Owned by member grocery stores
• Board of Directors (elected) hired the General manager
Logistics Facts:
• Serving 150 food stores (longest ~450 miles)
• All dry groceries were shipped from warehouse in Billings,
once or twice a week
• Produce shipped from Billing, Cheyenne, Great Falls two
or three times a week
• Owns 15 tractors, 19 trailers, 6 trucks/refrigerated
1-29
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Co-op Facts:
• Charges members cost + 23%
• Profit sharing: 20% to members (proportional to orders)
• Warehouse carries 8,000 SKUs, small grocery stores
carry 1,000~2,000 SKUs, Large members carry
6,000~8,000 SKUs
Issues at hand:
• Growing competition from chain stores
• Warehouse reaching capacity
• Proposal to build a larger warehouse (10,500 SKUs)
Motion: to limit SKUs to 8,000
1-30
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Discussions:
• #1: Co-op members presently pay for goods “on the
basis of cost to the co-op plus 23% to cover warehousing
and transportation from the warehouses to the members’
retail stores.” Is this a fair way to cover warehousing
costs? Can you think of a better way? If so, describe it.
• #2: Answer the problem posed in question 1 with respect
to transportation costs.
• #3: Toward the end of the case, Bright described how
some manufacturers pay bribes to get shelf space in
retail stores. Should retailers accept such bribes? Why or
why not?
1-31
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Discussions:
• #4: The case says, “Stores were responsible for placing
orders with the co-op, although a co-op representative
would call on a weekly basis, and one of her/his functions
was to help some store operators complete their order
forms.” Is this a function that the co-op should be
performing? Why or why not?
• #5: The case mentions that some of the larger stores that
belonged to the co-op sometimes threatened to form their
own co-op. Assume that you are hired by some of them
to study the feasibility of such a move. List the various
topics that you would include in your study.
1-32
Case 2-2 Wyomo Grocery
Buyers’ Cooperative
Discussions:
• #6: How would you vote on Hardy’s motion? Why?
• #7: Would it make a difference whether you represented
a large or small store? Why?
• #8: Are there other strategies that the co-op might pursue
to overcome this problem? If so, describe.
1-33